QUOTES-Square bags buy now, pay later firm Afterpay for $29 bln

·3 min read

(Quotes on the Square-Afterpay deal from analysts, strategists and market watchers) 

  Aug 2 (Reuters) - Square Inc on Monday said it has agreed to purchase buy now, pay later (BNPL) pioneer Afterpay Ltd to create a global online payments giant, offering a 30% premium in a share-swap deal that is set to be Australia's biggest-ever buyout. 

  The following are quotes on the deal from analysts, strategists and market watchers. 


  Square's all-scrip A$39 billion bid (A$126.21/share) marks the potential for Afterpay to achieve an increasingly rapid acceleration in its global trajectory. 

  Given the nature of the Square business and their Merchant and Consumer ecosystem, we see few realistic competing suitors beyond the major technology giants... 

  Now that Australia-New Zealand has fallen behind the United States in terms of group contribution, we believe Afterpay would likely face limited regulatory headwinds. 

  Few other suitors are as well-suited as Square. With Klarna Inc rumoured to be building a strategic stake in Zip Co Ltd , and PayPal Holdings Inc already achieving early success in their native BNPL, other than major U.S. tech-titans (Amazon.com Inc, Apple Inc) lobbying an 11th hour bid, we expect a competing proposal from a new party to be low-risk. 


  There is strategic merit behind the merger (customer and merchant growth/cross sell) and with a scrip deal, Afterpay shareholders can share in the benefits... We view a competing bid as unlikely at this stage. 


  The implied valuation of Square's offer is materially above our price target, but is almost perfectly in line with the consensus price target (FactSet) for Afterpay of $125.99. UBS does not cover Square, though we highlight that the consensus price target for Square is $281.76, which based on the fixed exchange ratio of 0.375 and the same foreign exchange assumption that Afterpay is using, would imply a A$143.82 valuation per Afterpay share. 


  The takeover makes sense for both sides. It's a big multiple buying another big multiple to deliver most market/client exposure. 

  Afterpay management selling at a discount to February high after pitching the growth outlook potential suggests we may be near the peak in the fintech optimism. 

  I am not expecting a counter offer for Afterpay but it does flag the industry consolidation in BNPL has started. 


  Not sure it was the most generous offer considering Afterpay did hit $160. Suspect the market may be a little underwhelmed... 

  Biggest-ever takeover at a huge multiple, it will have repercussions in the sector... 

  Zip Co Ltd is the one that is more interesting now, given Afterpay has now been taken off the board, and since it is the closest to Afterpay with the biggest U.S. business. 


  As investors have been wondering what the 'Killer App' was going to be to link Square's two ecosystems more meaningfully together, it would appear that fully integrating BNPL (via Afterpay) into and between Cash App and Seller is the answer. 


  At first blush, we contend acquiring Afterpay is a "proof of concept" moment for BNPL, at once validating the industry and creating a formidable new competitor for Affirm Holdings Inc , PayPal and Klarna... 

  We expect Square will invest heavily to integrate Afterpay and accelerate organic revenue growth. 


  It's a really market-defining transaction. It's literally the largest corporate transaction in Australian history. It really moves the needle and validates the work that Afterpay has been doing from a valuation point of view. (Reporting by Sameer Manekar, Paulina Duran and Byron Kaye; Edited by Christopher Cushing) 

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